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A senior management accountant’s role in general is more than a middle range manager
i.e. an accountant. The accountant is sets up and keeps track the accounting transactions,
prepare the financial reports etc. Whereas, a senior management account played a significant
role in the strategic decision making. It may be time to bring in a senior management
accountant to assist the four directors of Jessup Ltd with no professional in the management
accounting.
Relevant cost and revenue is important for Jessup Ltd to make strategic decisions
especial when the company starts growing fast. The concept relevance of cost is the ensure
that the management of Jessup Ltd focuses its attention on a decision’s relevant information.
As Jessup Ltd is growing fast in the industries, it needs a useful decision making
framework such as activity based costing to receive a better accuracy and relevant data. The
major advantage of implementing ABC for the company is the cost can by trace by activities;
therefore, Jessup Ltd has a fairer picture of the cost in between their two different services i.e.
advertising and public relation. With this better information, Jessup Ltd may take this
competitive advantage for making decision to sustain the growth in the business.
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CONTENT Page
JESSUP LTD
1. Introduction………………………………………………………………………………… 3
2. Key Role of Strategic Management Accountant…………………………………… 3
5. Conclusion……………….…………………………………………………………… 11
Reference list………………………………………………………………………………… 12
Page 2 of 13
REPORT
To : Board Of Directors
Title : Report on the strategic management accountant’s roles, cost relevancy in decision-
1. Introduction
c) The merits and problems of introducing activity based costing (ABC) in our
company.
When the company starts growing and become established, it will face greater
Hence, the integration of advance information technology and new management tools
has become a useful “weapon” for a company to sustain in the business. At the same
time, the role of the management accountant has changed, some of the traditional
The company’s strategy is a continuously cycling four stages process (Shank 1989)
and the strategic management accountant played a significant role in each stages:
a) Formulating strategies
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There are numerous of analysis tools that the strategic management accountant
can use in order to helps the directors to formulate the corporate strategy.
For example, the strategic management accountant may use analysis tool such
as SWOT, PESTEL and Porter’s 5 forces to helps the directors to understand the
environment that the company operates in before decide the strategy for the
competitor’s strengths and weakness by using SWOT. Both will include the financial
collection all of these information in a systematic way and reporting it so that the
directors could easily understand it and make use of such information (Smith 2007).
At the same time, the strategic management accountant would also prepare the
competitors’ product strengths and weakness analysis in order to study their product
management accountant can help to ensure that all of the accounting information
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d) Developing and implementing controls
It is import role for the strategic management accountant to compare the strategy
plan against the actual results and report to the directors. Performance
measurement if one of the comparison methods can be adopted. In this process, the
Making
The management accountant has to support the board of directors in making strategic
decision with quality information. The quality information must be useful for decision,
objective, accurate and relevant. In order to collect relevant cost and revenue, below
Future cost and revenues can affects the current decision as they are controllable,
b) Differ among the alternatives being considered, also call incremental cost or revenue
In the relevant costing process, the management shall compare the incremental
revenues and incremental cost of the alternative choices. The incremental cost will
normally be a variable cost, but in certain cases where incremental fixed costs may
also occur.
Opportunity costs are the benefits forgone due to one action be chosen over the
other. The costs are relevant cost but somehow they may be difficult to obtain.
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The relevant costing process excludes all non-monetary cost such as depreciation.
On the other hand, the irrelevant costs are as useless in decision making such as the
sunk cost (the historical cost that can not change no matter what decisions have be
made), depreciation (non-monetary cost) and fixed cost (constant cost that does not
Sunderland p.24)
Strategic decisions usually involve the long term and have significant effect on the
company. The relevant costing is important for strategic decision making. It helps the
directors to focuses on relevant cost and revenue associated with each decision
a) Outsource decision
The company’s advertising division has too many projects and facing major
problems of not enough resources. One of the project that is to make advertisement
Expenses
Earning from other projects if the team assigned to this project 30,000
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The company is deciding whether to outsource this project to other advertising
cources
Earning from other projects if the team assigned to this project 30,000
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Thus, the company should outsource the project to YY Ltd as the outsource cost is
lower.
In the process of decision making, there are many qualitative and quantitative factors
are considered. Qualitative factors such as the company reputation, customer satisfaction
and stakeholders’ relationship etc should also be evaluated separately as the relevant
In this highly competitive global economy, it is important for our company to have
access to good information for decision making. Many firms have criticism the
traditional accounting approach does not provide relevant, timely and accurate
information (Mealah & Ibrahim 2007). Thus, many companies have implement ABC in
recent years as the numerous success stories (Malmi 1997 p.460). The basic idea of the
activity-based costing (ABC) is that activities consume resources and products consume
activities, these three elements are links together in cause-and-effect relations called
Service companies can benefits from using ABC as same as the manufacturing
companies such as analyzing the cost. In generally, the fixed cost is service companies
are more common rather than direct cost in manufacturing companies (Berts &Kock
1995). For example, our advertising staff may in charge a few customers at the same
Smith (2007 p.427) states that the steps for implementing ABC are:
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b) collect overhead costs by activities into activity cost pools,
e) assign the appropriate cost driver usage for each product line.
a) ABC provides more accurate information than the traditional accounting approach.
The traditional approach using one to three volume-base cost driver such as labor
hour, machine time to allocate overheads to the product or service. Whereas, ABC
overhead. DHL had use the ABC to track the growth in average cost per shipment. It
was surprisingly shown that the IT accounting, management and administration cost
had grown by a massive and much higher than the operation cost per shipment and
the sales. The company shifts the company’s concentration from putting pressure on
the couriers to be more productive to more controlling the overhead costs (Smith
2007 p.545).
c) ABC enables the company has a clearer picture what products, customer or service
important for the company to make decision such as re-pricing, putting more effort
d) ABC provides analysis of each function performed in the company and identify the
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management can set priorities between different services. This can improve the
company’s services quality and increase our company reputation in the advertising
e) As our company is running two different services, ABC identifies the activities cost
of each service and provides relevant information for the service related decision
f) ABC is a useful decision making tools for economic analysis of development of new
g) ABC identifies the activities cost and eliminates non-value added activities in order
a) the ABC is a resource-consuming activity. It is costly for adopt ABC due to the
b) The process of ABC is time consuming. The process takes time to prepare due to the
complexity.
d) The cost incurred for implementing ABC may higher than the benefits.
e) Some manager may resistance to change and results poor labor relations in the
company.
Smith (2007) states that the practical problems that may occur when using ABC as
follows:
a) The decision on the choice of activities and selection of an appropriate cost driver
b) Many companies have not historical data on the cost driver. Hence the analysis such
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as overheads movement may not be conducted.
By implementing the ABC, our company can analyze more deeply the expenses
incurred and receiving accurate information of the cost for different services i.e.
advertising and public relations. This information allows for the pursuit of competitive
advantages to our company through the identification of relevant cost drivers and
activities.
5. Conclusion
questionable to adequate the directors for managing the turbulence changes in the
business environment. The relevant costing concept is important for preparing the
quality information which such information must be accurate, timely and relevant.
The activity based costing (ABC) is rely on this quality information to allow the
strategic management accountant to use modern analysis tool for helping the directors
Page 11 of 13
Signed by
Management Accountant
REFERENCE LIST
1. Gudrun Baldvinsdottir, John Burns, Hanne Norreklit & Robert Scapens 2010,
‘Professional accounting media: accountants handing over control to the system’,
Qualitative Researcg in Accouting & Management, Vol.7 No. 3 pp. 395-414, viewed 05
January 2011, Emerald Group Publishing Ltd, DOI 10.1108/11766091011072819
2. John K. Shank 1989, ‘Strategic Cost Management: New Wine, or Just New Bottles?’
JMAR, viewed 28 DEC 2010,
< http://miha.ef.uni-lj.si/_dokumenti3plus2/196128/Shank-1989-Strategiccostmanagement.pdf >
3. Ruhanita Maelah & Daing Nasir Ibrahim 2007, ‘Factors Influencing Activity Based
Costing (ABC) Adoption in Manufacturing Industry’ Investment Management &
Financial Innovation, Vol. 2, No. 2, pp. 113-148, ABI/INFORM Global, viewed 28 DEC
2010
4. Jan Emblemsvag 2007, ‘Using activity-based costing and economic profit to grow the
bottom-line’, Business Strategy Series, Vol.8 No. 6 pp. 418-426, viewed 05 January
2011, Emerald Group Publishing Ltd
5. Teemu Malmi 1997, ‘Towards explaining activity-based costing failure: accouting and
control in a decentralized organization’ Management Accounting Research, viewed 05
January 2011
< http://www.tecsi.fea.usp.br/disciplinas/5846/textos/pdf/towards.explaining.pdf>
6. Julia A Smith 2007, Handbook of Management Accouting, 4th edn, CIMA Publishing, UK
7. Drew Stapleton, Sanghamitra oati, Erik Beack & Poomipak Julmanichoti 2004, ‘Activity-based
costing for logistics and marketing’ Business Process Management Journal, Vol. 10 no. 5 pp.587-
Management Decision, Vol. 33 no. 6 pp.57-63, viewed 05 January 2011, Emerald Group Publishing
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Ltd
9. Kevan Williams 2009, ‘Essential Managers Strategic Management’ 1st edn, DK Publisng
US
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